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Cisco to buy Tandberg for US$3 billion

SAN JOSE, California and OSLO – Telecommunications giant Cisco Systems Inc has announced a bid to acquire Norwegian videoconferencing company Tandberg for US$3 billion in an effort to extend its reach in the corporate video communications market.

The acquisition of Tandberg, a market leader in video conferencing, helps Cisco fill the gap between its high-end TelePresence video meeting service for executives and its WebEx online meeting software used by millions of office workers.

Tandberg offers a variety of desktop and other mid-range products. Its units sell for around $7,500 each, while Cisco’s TelePresence units cost about $250,000.

One industry analyst said the combined company would have close to 50 percent market share, and the deal would help Cisco speed up growth of its video business in the mid-range of the market by 18 to 24 months.

Analysts said the move may spark other deals among video conferencing providers like Hewlett-Packard Inc and Polycom, and underscores Cisco’s focus on video conferencing which enables workers everywhere to interact with colleagues and customers online.

Cisco sees video conferencing driving sales of routers and switches, which help direct Internet traffic and are its traditional bread and butter. Online, high-resolution video requires ample bandwidth as well as advanced network equipment to ensure smooth connections.

Video conferencing has taken time to gain acceptance, but faster Internet speeds and pressure to cut corporate travel have helped boost adoption in recent years.

Cisco last quarter said revenue from TelePresence nearly doubled from a year earlier, even as router revenue fell 27 percent.

Cisco estimates the total value of collaboration tools, including everything from videoconferencing to conference calls to Google Apps, to be worth about $34 billion.

Most analysts said a rival bid was not expected, although they did not rule it out. Potential suitors include HP, which is also active in Web collaboration. The market has also linked telecoms gear maker Ericsson with Tandberg.

Analysts said the deal puts pressure on Polycom and other Tandberg rivals, particularly Radvision, which sells 40 percent of its products through a partnership with Cisco.

The acquisition would be Cisco’s biggest since it bought WebEx for $3.2 billion in 2007, and follows its purchase of Flip Video digital camcorder maker Pure Digital Technologies.

Such deals have been crucial to Cisco, which has grown from a company with $1.2 billion in annual revenue to around $40 billion since John Chambers (pictured) took the CEO role in January 1995. Chambers said Cisco, which had a cash pile of $35 billion as of July 25, would step up the pace.

“You’re going to see us more aggressive over the next 12 months than you have seen us as a company,” he said. “We will be very aggressive with internal start-ups, partnering ... and also in acquisitions.”

Technology merger activity is picking up as the market improves. PC maker Dell Inc recently bought IT services firm Perot Systems, and software maker Oracle Corp bought hardware firm Sun Microsystems Inc.

Posted October 8, 2009